May 1 (Bloomberg) -- Starbucks Corp., the coffee-shop chain that doubled its number of U.S. stores in four years, will slow expansion as second-quarter earnings tumbled 28 percent and customer visits declined.

``We think it is absolutely the most disciplined and prudent decision to slow the U.S. growth down,'' Howard Schultz, who returned as chief executive officer in January, said yesterday on a conference call with analysts.

Starbucks plans to pare new U.S. store openings through September by 155 cafes to 1,020. It will add 400 locations in each of the following three years, the Seattle-based company said.

The world's largest coffee-shop chain will turn instead to Canada, the U.K., China and Japan to boost sales. The ``transformation,'' as Schultz calls it, comes as cash-strapped U.S. consumers facing record gasoline prices are pulling back on so-called affordable luxuries, including gourmet coffee.

``It's a difficult task to kind of transition or transform a company'' in the best of times, Walter Todd, a principal at Greenwood Capital Associates LLC in Greenwood, South Carolina, said yesterday in a Bloomberg Television interview. ``Clearly the growth opportunities for companies like Starbucks are in these more emerging markets.'' Greenwood sold its Starbucks shares late last year.

Starbucks said it still plans to open 975 stores outside the U.S. through September. U.S. locations made up 11,434 of the company's 16,226 stores as of March 30.

Profit Falls

Net income dropped to $108.7 million, or 15 cents a share, Starbucks said, matching the preliminary amount it offered last week. Sales in the three months through March 30 climbed 12 percent to $2.53 billion on higher revenue from company-owned stores.

Starbucks rose 42 cents, or 2.6 percent, to $16.65 at 4 p.m. in Nasdaq Stock Market composite trading. The stock has declined 9.4 percent since Schultz replaced James Donald.

The Seattle-based company surprised investors last week by saying annual profit probably will fall as consumers curtail spending on non-necessities.

``The things that are higher-priced are going to suffer,'' in this weak economy, Edward Wedbush, chief executive of Wedbush Morgan Securities in Los Angeles, said yesterday in a Bloomberg Radio interview.

U.S. sales in stores open at least 13 months declined by a ``mid-single digit'' on a percentage basis, driven by fewer customer visits for the third straight quarter, the company said.

Annual Profit

Starbucks reiterated yesterday that it expects annual profit to fall from 87 cents a share a year earlier. The chain said it won't be more specific because of ``near-term economic conditions.'' Sales may increase as much as 14 percent.

Analysts surveyed by Bloomberg estimated annual profit of 97 cents a share before last week's forecast. They subsequently lowered it to 83 cents on a revenue gain of 13 percent.

Profit for year that ends September 2009 may be 90 cents to $1 a share, Starbucks said, matching analysts' estimates. Earnings the next year may be $1.10 to $1.20 a share, and improve the following year to as much as $1.50, Starbucks said.

Schultz's work to restructure Starbucks, close cafes with weak sales and eliminate plans for some new stores cost it 3 cents a share in the quarter, the company said.

He retrained employees to make espressos nationwide and tested $2.50 cups of ``fresh-pressed'' coffee in Seattle. The company began selling a milder blend of coffee called Pike Place Roast, named for its first store, in all company-owned shops.

Sandwiches Discontinued

Schultz will discontinue breakfast sandwiches Sept. 30, in part because their smell overwhelmed the aroma of coffee in the cafes. The chain is also offering a customer loyalty card for the first time.

Declining customer visits are not the result of competition from Dunkin' Donuts or McDonald's Corp., which is adding espresso counters, Schultz said yesterday on the call.

``It's not the competition, the research strongly suggests that,'' Schultz said. ``We don't believe that we saturated the market, but we do believe that we have a headwind the likes of which we have never seen.''

This summer Starbucks will begin selling energy drinks in partnership with PepsiCo Inc, a line of protein- and fruit- blended drinks, and frozen smoothie beverages made with yogurt, fruit or cream, Schultz said during the conference call.

To contact the reporter on this story: Duane D. Stanford in Atlanta dstanford2@bloomberg.net.

Last Updated: May 1, 2008 16:24 EDT